On the Swiss-Yachting of Mitt Romney

July 16, 2012

The day that Barack Obama went up with his most devastating ad of the 2012 campaign—quite possibly the most devastating Democratic general election ad in years—I happened to be reading Bill Marx’s review of a new Ambrose Bierce collection in the Columbia Journalism Review. It included this quote from Bierce (best known for his oft-anthologized "An Occurrence At Owl Creek") speaking about the power of ridicule:

“Ridicule, as I venture to use it myself,” wrote the author in the Chronicle in 1890, “seems to me to be the most excellent of offensive weapons because it hurts without damaging. No man’s good reputation is permanently impaired by ridicule, yet most men would rather be slandered rather than ridiculed. It is monstrous hard to bear; it lacerates the sensibilities horribly—if artfully done.”

What better way to describe the power of the Obama ad? Rather than hitting Romney’s offshore accounts and Bain Capital outsourcing head on, it tucks them within the framework of ridicule, making Willard Mitt Romney look not just objectionable but utterly risible. In this sense, it combines in one the two most devastating attacks against John Kerry in 2004—the dead-serious assault on his Vietnam War service and the sardonic attack on his flip-flopping, using the unfortunate images of his wind-surfing much as Obama uses Romney’s lamentable singing here.

But it’s also worth considering the import of the ad beyond its place in the pantheon of negative attacks, and reckoning with how remarkable it is that a Democratic presidential candidate in 2012 is putting a message like this at the center of his campaign. For at least two decades now, there has been major, and increasingly discomfiting, tension within the Democratic Party between its Bob Rubin wing—those wary of ruffling Wall Street feathers—and its Sherrod Brown wing, those who see the country’s troubles as inextricably bound up with the excesses of an unaccountable, undertaxed financial and corporate elite. The tensions defined the first year or two of the Obama administration, and the Wall Street wing largely prevailed. The tensions were there for all to see again a few weeks ago, when Cory Booker and Bill Clinton objected to Obama’s initial attacks on Bain. This time, the other guys prevailed, and the attacks kept coming. This is perhaps not so surprising—the way for Obama to win reelection, with the economy as soft as it now is, is to make his opponent an unacceptable alternative, and the way to make Mitt Romney unacceptable is to tie him and Bain Capital to the Gordon Gekko trends of the past thirty years—an abundantly easy link to make. Still, though, it’s not hard to imagine the gratification that is being felt right now among the anti-Rubin wing of the party over the fact that the Democratic nominee is now running an ad declaring that financial elites like Mitt Romney are at the root of the "problem." Take the tweet over the weekend from Mike Podhorzer, the political director of the AFL-CIO, in response to the new ad: "Proud to see a presidential campaign about what matters to real Americas. Let’s keep it up for another 115 days."

One more word on the whole metastasizing debate over just when Mitt Romney did or didn’t leave Bain. As I wrote late last week, we need to be careful not to place too much emphasis on this question. The whole debate about Romney’s departure date has arisen because Romney and his campaign have attempted to argue that he had nothing to do with some politically unpalatable Bain deals in the 1999-2002 period. It’s a striking defense, because it puts Romney in the position of trying to claim his pre-1999 Bain work as the main argument for his campaign, while frantically trying to disown the company past that point. But it’s a strategy that worked for him in his 2002 gubernatorial campaign, when, to avoid a repeat of the hammering he received for Bain deals in 1994 from Ted Kennedy, he simply declared that he’d had nothing to do with the deals that Shannon O’Brien, his 2002 opponent, was trying to tar him with (notably the bankruptcy of a Kansas City steel mill).

Given that Romney has made so much of this distinction, and declared so baldly that he had nothing to do with the firm post-’99 despite ample evidence to the contrary, it’s well worth scrutinizing the question simply for the sake of determining whether he is telling the truth. But again, the answer to the question of his post-’99 role should not be allowed to settle the matter of whether or not Romney is responsible for deals that went south in that period. As Tom Hamburger reported in the Washington Post, many of the outsourcing-related investments that Bain made were rooted in the pre-1999 period. The same goes for other unsavory deals whose final disintegration occurred post-’99. Take the case of Dade Behring, the medical supply firm whose demise at the hands of Bain was retold in the strong new Vanity Fair piece about Romney:

In 1994, Bain bought Dade International, a medical-diagnostics company, then added the medical-diagnostics division of DuPont in 1996 and a German medical-testing company called Behring in 1997. Former Dade president Bob Brightfelt says the operation started well: the Bain managers were “pretty smart guys,” he recalls, and they did well cutting out overlap, and exploiting synergies.

Then brutal cost cutting began. Bain cut R&D spending to an average of 8 percent of sales, a little more than half what its competitors were doing. Cindy Hewitt, Dade’s human-resources manager, remembers how the firm closed a Puerto Rico plant in 1998, a year after harvesting $7.1 million in local tax breaks aimed at job creation, and relocated some staff to Miami, then the company’s most profitable plant. Based on re­a­ssur­ances she had received from her superiors, she told those uprooting themselves from Puerto Rico that their jobs in Miami were safe for now—but then Bain closed the Miami plant. “Whether you want to call it misled, or lied, or manipulated, I do not believe they provided full information about what discussions were under way,” she says. “I would never want to be part of even unintentionally treating people so poorly.”

Bain engaged in startling penny-pinching with the laid-off employees. Their contracts stipulated that if they left early they would have to pay back the costs of relocating to Miami—but in spite of all that Dade had done to them, it refused to release the employees from this clause. “They said they would go after them for that money if they left before Bain was finished with them,” Hewitt recalls. Not only that, but the company declined to give workers their severance pay in lump sums to help them fund their return home.

In 1999, generous pensions were converted into less generous benefits, wages were cut, and more staff members were laid off. Some employees contacted Norman Stein, then the director of the pension-counseling clinic at the University of Alabama law school, with a view to challenging the conversions. Stein says the employees were “extraordinarily nervous,” so fearful, in fact, that they refused to let lawyers even make copies of pension documents. “I have been dealing with pensions issues for over 25 years and I never saw anything like this,” recalls Stein. The spooked employees did not go to court. Stein says that, while breaking pension contracts like this was not unheard of, the practice at that time was “questionable,” adding that Dade may have saved $10 to $40 million from converting its pensions.

The beauty—or savagery—of leverage is that it can magnify any and all cash-flow boosts, such as this one. Take $10 to $40 million squeezed from a pension pot, then use that to create new, rosier financial projections to borrow several times that amount, and then pay yourself a big special dividend from the borrowed funds, many times the size of the pension savings. That is just what Bain Capital did: the same month it converted the pensions, it created new financial projections as a basis to borrow an extra $421 million—from which Bain, its co-investor Goldman Sachs, and top Dade management extracted $365 million in dividends. According to Kosman, “Bain and Goldman—after putting down only $85 million … made out like bandits—a $280 million profit.” Dade’s debt rose to more than $870 million. Romney had left operational management of Bain that year, though his disclosures show that he owned 16.5 percent of the Bain partnership responsible for the Dade investment until at least 2001.

To put it simply: Romney left to run the Olympics the same year that Bain engaged in its most appalling chicanery with Dade. But it would be willfully naive to hold Romney blameless for these decisions. He had overseen everything that led up to that point in the Dade investment, was by Bain’s own 1999 accounts keeping a hand in key firm decisions, and had a huge personal stake in the millions that were sucked out of Dade. Keep this episode mind over the next few days of incremental back and forth over "retroactive retirements" and Bain paperwork with or without Romney’s signature: whether or not Romney was at Bain in person between 1999 and 2002, he was very much there in spirit, and in wallet.

*I should note, for what it’s worth, that that the clever “Swiss-yachting” phrase used in the headline here was not of my own invention. If I knew which of the Twitterati came up with it, I’d gladly credit him or her. The inimitable Dave Weigel came up with an earlier, equally apt iteration—“Swift-yachting”—but I’m not sure who added the Swiss twist.

**Addendum, 3 p.m.: Turns out Politifact has now taken a look at all this and, unlike the other two main fact-checking outfits, come down roughly on the ground I’ve been staking out for a few days now: no, Romney did not have day to day management after 1999; yes, of course he can held partly responsible for actions taken by Bain between 1999 and 2002.